Analysis
13 Feb 18

Fleet insurance costs heading skywards

Insurance and risk management are not the easiest elements in a vehicle fleet’s total cost of ownership to manage. And only comprehensive risk management strategies can spare fleets from dramatic premium increases.

Premiums are hardening across Europe as the cost of individual claims rises and insurers are more closely regulated in regard to their solvency.

“In the Netherlands, the UK, Ireland, Slovakia, Hungary and Poland we are seeing double digit increases in premiums,” said Eelco van de Wiel, managing director, FI insurance.

Cross-subsidies

Under new rules, insurers have to report the solvency ratio of each business line to regulators. In addition, new capital requirements prevent insurers from investing in risk-bearing areas, a move which is restricting the opportunity to cross-subsidise loss-making business lines.

This gives insurers two options: increase premiums to become solvent in the fleet automotive market; or leave the market.

In-house

These developments are leading to a decline in competition and an increase in premiums.

“Fleet-owners and leasing companies are seeing premium increases of between 10 and 100%,” said van de Wiel.

The result is larger fleets and leasing companies setting up in-house captive insurers, to underwrite all or a significant share of their risk, as well as fleets accepting higher excesses (deductibles) in order to limit premium inflation.

“Unbundling will be a big issue,” he said, adding that he expects new capital-rich entrants to the fleet insurance market, who will look to cherrypick the lowest risk fleets.

ADAS, EVs and hybrids

It seems ironic that premiums are rising at a time when the prospect of accident free roads no longer seems like science fiction thanks to autonomous vehicles. But in the short term, while Advanced Driver Assistance Systems (ADAS) may be helping to reduce the frequency of accidents, they have also sent repair costs soaring.

For example, a windscreen replacement for a Ford Focus with Automatic Emergency Braking radar can increase by 123%, according to Thatcham, the experts in vehicle safety technology, vehicle security and crash repair.

And then there’s the increasing penetration of electric and hybrid vehicles, which require repairers to invest in training and new tools to repair the new motors.

The return of the dealerships

Independent, multi-brand bodyshops have brought efficiency and lower cost to the repair process, but the scale of investment to repair the batteries and banks of computers that drive zero and low-emission cars is prohibitive for many. 

“I see a shift for hybrid and electric cars to go to dealer networks for repairs, so a Tesla goes to a Tesla dealership and a BMW goes to a BMW dealership,” said Scrayen, director of VHS, the Belgian insurer. “These dealerships are getting back into the market of vehicle repairs.”

To minimise costs, Scrayen predicts fleets and insurers will increasingly turn to smart repairers to fix vehicle body damage.

“For all the scratches and little bumps to the outside of the car, when the mechanics and electronics are not damaged, then the repair can be done via smart repair techniques, and the cost is three to four times less than a normal repair,” he said.

Road risk management

Rising premiums are also putting pressure on fleets to manage their road risk better. An increasing number of employers are specifying ADAS on new cars and they are changing corporate attitudes to risk.

“Very large fleets are already all in self-insurance and what you see now is that mid-sized fleets are also moving to self-insurance,” said Scrayen. “And when fleet owners move to higher self-insured levels they become more aware of all loss prevention initiatives, because the risk is no longer transferred to the insurer.”

Drivers

Any risk management initiatives that fail to focus on the driver and the work demands that he or she faces are destined to fail, regardless of the safety features specified to their cars, according to Andy Price, managing director of Fleet Safety Management.

“It’s not about technology or having a fleet policy or an excellent driver handbook,” he said. “It’s about making sure that drivers do not face pressures to drive unsafely, whether this arises from sales targets or the punctuality of service and delivery.”

He cited the case study of Iron Mountain, the information storage and management company, which over six years managed to reduce its vehicle incidents by 74% and lower its own damage and third-party costs by 60% across its 500-strong mixed fleet. Through positive action on telematics data, the company has reduced incidents of speeding to one per vehicle per week, without any impact on its on-time delivery service KPI of 99.97%.

Biometrics for vehicle security

As for the future, science fiction seems ever closer to becoming science fact. Allianz, for example, is exploring the possibilities of biometrics for vehicle security, which could not only improve security against theft, but pave the way for easy driver identification in pool cars, shared fleet vehicles and car clubs. 

“Many companies are researching ways to use biometrics and driver authentication to further focus underwriting decisions – being able to apply premiums which are bespoke to whoever is driving,” said the insurer.

“The technology has the potential to be a much richer way of gathering data than telematics is now. It could track the driver’s eye movement to see how often
they use their mirrors and look away from the road. It could also monitor hand movements to know how often a driver takes their hands away from the wheel and for how long. Used in conjunction with telematics, it could yield the most thorough representation of the insured risk.”

Dos and Don'ts for 2018
  1. Investigate the cost and level of cover of each of your insurance policies. Fleets with multiple supply leasing contracts may find wide variations in the premium and deductible between the different leasing companies.
  2. Consider unbundling insurance to have a single, uniform policy nationally or internationally.
  3. Invest in Advanced Driver Assistance Systems for all new vehicles. Research by Thatcham indicates that Autonomous Emergency Braking can reduce the incidence of rear-end crashes by 38%.
  4. Focus on drivers and any corporate pressures to drive unsafely, such as excessive workloads or unrealistic delivery targets. Telematics systems can give a very accurate profile of how each employee drives.
  5. Adopt smart repairs for body-only damage – it’s faster and three to four times cheaper than traditional bodyshop repairs.

Photo: Research indicates that AEB can deliver major success in reducing rear-end crashes. (source: Volkswagen Commercial Vehicles)

Authored by: Jonathan Manning